Gold de­mand far bet­ter than prices in­di­cate

Now that gold has pulled back from a peak of around $1,900 per ounce to less than $1,300 per ounce, many of the gold bugs have dis­ap­peared. What is in­ter­est­ing is that the ac­tual de­mand in ton­nage is not re­ally drop­ping. The most re­cent data from the World Gold Coun­cil shows that global de­mand for gold in the first quar­ter of 2014 was 1,074 tonnes, ver­sus 1,077 tonnes in the first quar­ter of 2014.

The quar­terly prices used for the World Gold Coun­cil’s com­par­isons was $1,293.10 in Lon­don trad­ing (in U.S. dol­lars) for the first quar­ter of 2014. That is only marginally higher than the fourth quar­ter of 2013, but way down from the $1,631.80 from the first quar­ter of 2013.

Where this gets in­ter­est­ing is that jew­elry de­mand was the big­gest fac­tor in the de­mand for gold. Is it re­ally as sim­ple as an im­prov­ing econ­omy and a more af­ford­able metal for that jew­elry? It seems so. Cen­tral banks added gold as well, and in­vestor de­mand was called sta­ble by the World Gold Coun­cil.

Some 571 tonnes of the to­tal 1,074 in first-quar­ter de­mand was jew­elry. This was the strong­est first-quar­ter de­mand for the jew­elry sec­tor since 2005 — long be­fore the re­ces­sion. We also could not help but no­tice that the 570.7 tonnes of de­mand was barely lower on a se­quen­tial ba­sis as the de­mand was 573.4 tonnes in the fourth quar­ter of 2013.

There was some spot of weak­ness out there. The firstquar­ter de­mand from the tech­nol­ogy sec­tor was 99 tonnes, down from 103.5 tonnes in the first quar­ter of 2013, and even slower in an­nu­al­ized trends ver­sus 2012 as well.

In­vest­ment was called sta­ble by the World Gold Coun­cil’s re­port, but this seems very sub­jec­tive and su­gar-coated by our read. Ex­change traded funds (ETFs), such as the SPDR Gold Trust (NYSEMKT: GLD) and oth­ers, saw a drop of 0.2 tonnes in de­mand in the first quar­ter, but that was mas­sively bet­ter than the out­flows of 176.5 tonnes a year ear­lier. De­mand for gold bars was 216.4 tonnes in the first quar­ter of 2014, ver­sus 356 tonnes in the first quar­ter of 2013. Of­fi­cial gold coin de­mand was down to 52.1 tonnes in the first quar­ter of 2014, ver­sus 77.9 tonnes in the first quar­ter of 2013.

While Cen­tral banks added 122.4 tonnes of gold to their re­serves in the first quar­ter of 2014, that was down from the 130.8 tonnes pur­chased in the first quar­ter of 2013.

The World Gold Coun­cil’s re­port on first-quar­ter de­mand might have ended up far dif­fer­ent had it not been for a mas­sive drop in the out­flows of ETFs and other pooled-in­vest­ment funds and trusts. In fact, some of the de­mand strength may have solely been tied to less cu­mu­la­tive sell­ing from in­vestors rather than due to great buy­ing.